Dine Brands’ third quarter was negative for both of its largest concepts, with Applebee’s U.S. same-store sales declining by -5.9% and IHOP decreasing by -2.1%. Both brands underperformed both analysts’ expectations and their category peers. During the company’s earnings call Wednesday before market, chief executive officer John Peyton said the brands’ consumer demographic continues to pull back on discretionary spending with the biggest impact coming from lower-income consumers.
“There’s no doubt that macro challenges continue to impact performance,” he said, adding that the company is working on strategy adjustments to “push back against these headwinds.”
“What we’re seeing is a very promotion-driven environment right now and a lot of ‘noise’ for consumers to sort through when there are so many brands and categories offering so many promotions and deals, so we have to make sure we are sharp in the right promotion,” Peyton said, adding that the value messages both brands have been sharing haven’t been as compelling as they’ve needed to be in the past couple of quarters.
“We know we're capable of more and while the underlying strength of our business provides assurance of resilience through market cycles, we are diligently working to identify and address the missing ingredients in our strategy to refine our offerings and move forward,” Peyton said.
Among those refinements is a bigger focus on consistency and simplicity. As consumers continue to trade down, more are seeking what Peyton calls “all-encompassing value” that extends to the entire dining experience, including a seamless interface and knowing what to expect. Applebee’s, lapping tough comps from its all-you-can-eat wings promotion last year, will also continue to lean into its new NFL partnership to drive traffic. The chain will also make menu refinements, as it’s done recently with its Pick 6 promotion and Real Big Meal Deal.
“We’re applying our learnings with a shift to more full meal value offers and will continue to evolve our value propositions to keep our guests engaged,” Peyton said. “We need to be more consistent with our promotions, making sure they perform more often or all the time and not as hit or misses we had during the quarter.”
Peyton said guest expectations of value has shifted throughout the last couple of quarters – they’re focusing more on the total cost of the meal versus an element of the menu or menu item. This is why, for instance, IHOP recently introduced its new House Faves menu, with four full breakfast meals for $6. President Jay Johns said early results have been encouraging.
“Full meals are what the guest is wanting now at a price point that’s very competitive,” Johns said.
“It became clear that guests want to know the total cost of dining in a restaurant for argument's sake,” Peyton added. “We’re focused on getting the value right and making sure our offerings match up.”
Applebee’s president Tony Moralejo said the chain is building a new “integrated value platform” aimed at creating more consistency to “kickstart a new cycle of traffic and sales growth.” A new campaign will launch next week that provides a glimpse of this approach, he added.
IHOP lapped last year’s initial introduction of its all-you-can-eat pancakes and brought it back this year for the back-to-school season because of its success. Peyton said the promotion had a positive impact on sales in August and September, “with comp sales performing at or above family dining for three weeks during the promotion.” The September launch of the Anytime Tacos and Breakfast Burritos are also driving profitability for franchisees, Peyton said, as part of IHOP’s barbell pricing strategy.
IHOP also continues to ramp up the reopenings of its 24-hour restaurants and, year-to-date, has 42 additional 24-hour locations, bringing the total to 860.
Dual-branded plans
One bright spot for the company is the acceleration of its dual-brand IHOP/Applebee’s locations. In Q3, three new dual-branded restaurants were open, bringing the total to 13 in international markets.
Peyton said the restaurants have performed well with an average of approximately 1.5 to 2 times the revenue of a single branded restaurant. In the U.S., 15 sites have been identified for the dual-branded model, with the first location on track to open in Seguin, Texas, in Q2.
“Having two iconic brands in our portfolio that complement each other is a competitive advantage, and we plan to leverage this to improve the economics and drive growth across our system,” Peyton said. “The driver for the dual brand is really the economics for our owners and developers. It’s really a (business-to-business) product in the sense that it’s got complementary dayparts, a shared kitchen, common menu, cross-trained staff.”
The model has generated plenty of franchisee interest, Peyton added, and could help Applebee’s reverse net closure numbers next year.
Dine Brands by the numbers
- Applebee’s same-store sales declined 5.9% for the third quarter of 2024. Off-premises sales mix accounted for 21.7% in the third quarter of 2024 compared to 21.5% in the third quarter of 2023.
- IHOP’s same-store sales declined 2.1% for the third quarter of 2024. Off-premises sales mix accounted for 19.3% in the third quarter of 2024 compared to 19.5% in the third quarter of 2023
- Total revenues for the first nine months of 2024 were $607.5 million compared to $624.8 million for the first nine months of 2023. The decline was primarily due to the negative comp sales growth at the brands, partially offset by increases in the number of effective franchise restaurants and proprietary product sales at IHOP.
Contact Alicia Kelso at [email protected]
